Valley National Bancorp is raising upwards of $400 million in new capital, taking advantage of the recent run-up in stock prices to accelerate a reduction of its real estate loan concentration.
The New Jersey-based bank, whose large commercial real estate portfolio has caused investors some angst, announced the capital raise after markets closed on Thursday.
Analysts were optimistic about the move, saying it will bring Valley's capital levels close to those of its regional bank competitors and help it capitalize on loan growth opportunities. The bank has been scaling back its vast CRE footprint as
The added capital is an "offensive" measure that accelerates those goals, Raymond James analyst Steve Moss wrote in a note to clients.
"We like the transaction as it improves regulatory capital ratios and suggests that management is seeking to focus on growing and enhancing the franchise rather than a more defensive, balance sheet run-off position," Moss wrote.
The $62 billion-asset bank has
But the sheer size of Valley's CRE portfolio has drawn concerns from some investors, who have been skeptical of banks where CRE loans comprise more than 300% of capital. That figure stems from regulatory guidance that has come back into focus as high interest rates and building vacancies pressure some banks' real estate loans.
Valley's CRE concentration stood at 460% of its equity in April, when it
Last month, Valley updated its goal to 375% by the end of 2025, as decreased CRE lending and a planned sale of some $800 million in loans brought its concentration down sooner than it had planned.
The capital raise means that Valley's concentration figure is now 380%, nearly putting the bank at its goal a year ahead of time, analysts said.
"You get to that goal at 375% basically right away," said Jared Shaw, a Barclays analyst.
Shaw, who has a neutral rating on Valley's shares, said there's more "heavy lifting ahead" to prove that the bank's CRE loans will remain healthy.
But Valley is "no longer an outlier on capital" after the raise of at least $400 million, Shaw said. And having extra capital "makes it a little easier" for the bank to keep growing its commercial loan book, Shaw said. He anticipates growth in that category to exceed 12% next year.
In its announcement Thursday, Valley said it intends to use the money for "general corporate purposes" and to boost its regulatory capital levels.
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Gosalia expects Valley to raise $460 million in common equity through the effort, when including an option for underwriters to buy some $60 million in shares. The capital raise should have a "roughly neutral" impact on the bank's tangible book value per share, Gosalia wrote. That's because the $9.35 per share price is at a 3% premium to the company's $9.06 tangible book per share in the third quarter.
Valley said it expects the deal to close Tuesday.
The company announced last month that its former chief financial officer, Michael Hagedorn, would leave the bank at the end of November. Valley is conducting a search for a new chief financial officer.
In the meantime, it has elevated Travis Lan to be interim CFO. Lan became Valley's deputy CFO this year after joining the company's finance department in 2020. He was previously an investment banker at Keefe, Bruyette & Woods and earlier did sell-side bank research at KBW and Stifel Nicolaus.
Valley's stock price fell less than 1% on Friday after the capital raise was announced.
